What Proposition 99 Means for California’s Cities

by Chris McKenzie

June 3, 2008, was a red-letter day in California for a number of reasons, including the overwhelming defeat of Proposition 98 (38 percent for, 62 percent against) and passage of Prop. 99 (62 percent for, 38 percent against). While Prop. 98 would have severely limited the powers of state and local governments over land use, the environment, affordable housing, rent control, eminent domain and more, it was decisively rejected by the voters in favor of approval of Prop. 99. As the No on 98/Yes on 99 coalition told voters during the hard fought campaign, Prop. 99 represents significant eminent domain reform without the many hidden agendas contained in Prop. 98. Moreover, it effectively limits the 2005 Supreme Court ruling in the case of Kelo v. City of New London, Conn., by amending the state Constitution to prohibit certain uses of eminent domain to support redevelopment of cities and counties.

How Eminent Domain Rose to National Prominence

In February 1998, Pfizer Inc., a large pharmaceutical company, announced that it would build a $300 million research facility on a site adjacent to the Fort Trumbull area of New London, Conn. Many jobs had been lost through the departure and downsizing of businesses in this area when the largest local employer -- the Naval Undersea Warfare Center, with more than 1,500 employees -- closed. The city’s unemployment rate was nearly double that of the state. These conditions prompted state and local officials to target New London for economic revitalization. The New London Development Corporation (NLDC) was directed to draft a development plan for the Fort Trumbull area. In January 1998, the state had authorized a $5.35 million bond issue to support planning activities and a $10 million bond issue toward the creation of a state park in the area.

Local planners and officials expected Pfizer to be the catalyst for the area’s economic rejuvenation. After receiving initial approval from the city council, the NLDC continued drafting its economic development plan. The city council authorized sending the plan to the relevant state agencies for review. Upon obtaining state-level approval, the economic development plan for the 90-acre Fort Trumbull area was finalized. The city council approved the plan in January 2000.

The economic development plan consisted of both private and public development. It represented a comprehensive mix of uses that would ensure economic diversity and overall public benefit. The development planning area was segmented into seven parcels. City officials hoped to capitalize on the arrival of the Pfizer facility. In addition to creating jobs, generating tax revenue and helping to "build momentum for the revitalization of downtown New London," the plan was also designed to make the city more attractive while creating leisure and recreational opportunities on the waterfront and in the park. The NLDC successfully negotiated the purchase of most of the land in the 90-acre area, but its negotiations failed with nine property owners who owned 15 properties in Fort Trumbull. As a result, in November 2000, the NLDC initiated the condemnation proceedings that gave rise to the Kelo case.

Private property can be acquired by eminent domain only for a "public use." Susette Kelo and her fellow petitioners made two arguments about New London’s use of eminent domain: Eminent domain can be used only to acquire property for a public use, and public use means that the property must be put into use for the general public. They argued that economic development was not a "public use." Second, they argued private property that was not blighted could not be acquired by eminent domain.

The U.S. Supreme Court rejected both arguments. First, the court held that "public use" does not mean use by the public. Rather, the court embraced the broader interpretation of public use as "public purpose." Similarly, the court held that not every single piece of property within a depressed area need be "blighted" in order to be acquired for this "public purpose." Condemnation of the non-blighted property served a public purpose because of the anticipated economic benefits of the proposed project to the entire community.

How Proposition 99 Overturns the Kelo Decision in California

Many California cities and counties initiate redevelopment projects through the California Community Redevelopment Law. The law was enacted in 1945 to address problems common throughout California and the nation. In the post-World War II era, public officials were greatly concerned about the condition of the existing building stock, the lack of affordable housing for returning soldiers, and urban blight. Although these conditions were not new, the nation was now ready to address them.

The California Community Redevelopment Law gave cities and counties in California the authority to establish redevelopment agencies, giving these agencies the authority to attack problems of urban decay and enabling them to apply for grants and loans from the federal government. To remedy those issues of concern in the post-war era, redevelopment agencies were given certain fundamental tools that remain essential to their operation more than 60 years later: the authority to acquire real property, including the power to use eminent domain; the authority to develop the property; and the authority to impose land use and development controls in accordance with a comprehensive plan of redevelopment.

The right to take or damage private property (the power of eminent domain) is inherent in the sovereign nature of state and local governments. The California Constitution is an instrument of limitation, not a grant of authority. Therefore, any mention of the power of eminent domain in the California Constitution is a limitation on the exercise of that power. Prior to the adoption of Prop. 99 on June 3, 2008, the California Constitution included two limitations on the power of eminent domain:

1. Private property may be taken or damaged only for a "public use"; and

2. Private property may be taken or damaged "only when just compensation ... has first been paid to the owner."

With the passage of Prop. 99, the Home-owners and Private Property Protection Act, Kelo v. New London is no longer the law in California with regard to the treatment of owner-occupied single-family residences. Prop. 99 added a third limitation on the power of eminent domain:

3. An owner-occupied residence may not be acquired by eminent domain for the purpose of conveying it to a private person. [Emphasis added.]

Frequently Asked Questions

The following are questions commonly asked about Prop. 99.

What is an owner-occupied residence?

An owner-occupied residence is a certain type of residence occupied by a particular owner. The residence must be a single-family residence, such as a detached home, condominium or townhouse, or a dwelling unit attached to or detached from a single-family residence that provides complete independent living facilities for one or more people. The owner must make the single-family home his or her principal place of residence for at least one year prior to the government’s initial written offer to purchase the property. A person may have only one "principal place of residence."

When is property conveyed?

Prop. 99 defines "convey" to include a transfer of real property whether by sale, lease, gift, franchise or other means. This means that any transfer of property acquired by eminent domain is a "conveyance" for purposes of this new limitation.

Who is a "private person"?

A "private person" is any individual, association or type of business entity.

What does this mean for cities and local redevelopment agencies?

A redevelopment plan may call for the redevelopment of a "blighted area" with a variety of commercial uses or mixed commercial and residential uses. The first step in implementing the plan would be for the redevelopment agency to select a developer for the commercial center. However, the developer may not own all of the land that is necessary for the center.

Let’s assume that a single-family residence is on one of the parcels that the developer needs for the center. The owner of the residence has lived in the home for the past three years. The developer is unable to negotiate the purchase of the home and asks the redevelopment agency for help. The redevelopment agency may help the developer acquire the property by negotiating the purchase of the property with the owner - without using eminent domain - and then conveying it to the developer. In fact, this is a much more common way for agencies to acquire property in such cases. But the agency may not use eminent domain to acquire the property and then convey it to the developer.

What if a city needs to acquire an owner-occupied single-family residence to widen a highway or construct some other type of public improvement?

The limitation on the use of eminent domain added by Prop. 99 does not apply when the state or a local government exercises the power of eminent domain for the purpose of acquiring property for a public work or improvement. Public work or improvement means facilities or infrastructure for the delivery of public services such as education, police, fire protection, parks and recreation, emergency medical care and public health.

What if a city needs to acquire an owner-occupied single-family residence in order to build a convention center? Does Prop. 99 mean that the city cannot lease a portion of the convention center to a coffee or food vendor?

No. Prop. 99 allows the state and local governments to acquire an owner-occupied single-family residence in order to construct a public improvement, such as a convention center, and then "convey" through a lease a portion of the center to a coffee or food vendor under the "incidental to, or necessary for" exception. A lease to a coffee or food vendor would be "incidental" to the operation of the building as a convention center if the area used by the vendor was a very small percentage of the total area of the center. A lease to a coffee or food vendor would be "necessary for" the operation of the building if the lease revenues were pledged to the debt incurred to operate the convention center.

What if the owner-occupied single-family residence is a public health hazard or the site of criminal activity? Does Prop. 99 mean that a city cannot acquire the property by eminent domain in order to eliminate the hazard or mitigate the criminal activity?

No. Prop. 99 allows the state and local governments to acquire an owner-occupied single-family home for the purpose of protecting public health and safety; preventing serious, repeated criminal activity; responding to an emergency; or remedying environmental contamination that poses a threat to public health and safety. This means that a local government may acquire an owner-occupied single-family residence to prevent serious, repeated criminal activity and convey the house to a private person.

Residents in redevelopment project areas have always been protected by the law. Redevelopment agencies are required to include residents in extensive outreach efforts and to ultimately provide them with relocation assistance if the activities of the redevelopment agency require them to leave their homes. Prop. 99 adds to this protection by preventing the acquisition of an owner-occupied single-family residence by eminent domain for conveyance to a private party.

Historically, redevelopment agencies have not often used eminent domain to acquire a single-family residence for this purpose. Usually if acquisition is necessary, an amicable purchase is negotiated. However, Prop. 99 makes it clear that in California the voters believe that a single-family homeowner must be given the choice of whether to retain his property or sell it to allow for redevelopment of the area.

Conclusion

Prop. 99 accomplished real eminent domain reform in California without the wide-ranging impacts that would have accompanied Prop. 98. It contains widely supported restrictions on the use of the power of eminent domain, and any claims to the contrary are simply unsupported by the amendment and any fair analysis of its provisions. Once again the voters of California have made an informed and balanced policy choice, and we will all be better for it.